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CS Professional · Corporate Restructuring, Valuation and Insolvency · Taxation and Stamp Duty Aspects of Corporate Restructuring

Malwa Co-operative Bank demerges an undertaking into Deccan Co-operative Bank (resulting bank) during the tax year. Rs 40 lakh of Malwa's accumulated loss is directly relatable to the transferred undertaking. How does section 118 of the Income-tax Act, 2025 treat this Rs 40 lakh?

The whole Rs 40 lakh goes to the resulting bank, because loss directly relatable to the transferred undertaking is carried forward and set off against the resulting co-operative bank's income. Apportionment applies only to loss not directly relatable.

  1. AIt is apportioned between the two banks in the ratio of their turnover
  2. BIt stays entirely with the demerged bank
  3. CThe whole amount is carried forward and set off against the income of the resulting bankCorrect
  4. DIt lapses because a demerger occurred

Explanation

Section 118(2)(a) provides that where accumulated loss or unabsorbed depreciation is directly relatable to the undertaking transferred, the whole of it is carried forward and set off against the resulting bank's income. Apportionment applies only to amounts not directly relatable, and it is based on asset distribution, not turnover.

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